SHOE 10-K & 10-Q changes, risk factors and insider trading

the impact ofof, and regional and national government response toto, pandemicsa crisis;

We face significant competition in our markets, and we may be unable to compete favorably. The retail footwear industry is highly competitive with few barriers to entry. We compete primarily with department stores, shoe stores, sporting goods stores, e-commerce retailers, off-price retailers and mass merchandisers. Many of our competitors are significantly larger and have substantially greater resources than we do. Since Fiscal 2019, ourOur Gross Profit margin has expanded and has been a key driver to the overall increase inof our profitability. If our competitors become more promotional than we are, or if we match our competitors’ promotional intensity, and lower margins are not offset with increased sales or lower operating expenses, our results of operations and financial condition may be adversely affected.

Adverse impacts on consumer spending may significantly harm our business and impact our promotional strategies and intensity. The success of our business depends to a significant extent upon the level of consumer spending. Consumer confidence is hypersensitive to a wide variety of influences that may affect the level of consumer spending on merchandise that we offer, including, among other factors:

inflation and tariffs;

energy costs, which affect gasoline and home heating and cooling prices;

tax rates, policies and timing and amounts of tax refunds and other government stimulus; and natural disasters, changing weather patterns and catastrophic events, including the possibility of a pandemic resurgence.

Any adverse change in these factorsfactors, such as a significant increase in gasoline and/or other energy-related prices, could result in a decrease in consumer demand for our merchandise. Reduced consumer demand could result in reduced traffic in our physical stores and to our e-commerce platform,platform and increased selling and promotional expenses and inventory markdowns, and could cause us to close underperforming stores, which could result in higher than anticipated closing costs. Reduced demand may result in higher than normal inventory positions across our competitive landscape and may limit the prices we can charge for our merchandise and force us to adjust our promotional intensity. Adverse changes in these factors, such as a significant increase in gasoline and/or other energy-related prices, could also negatively impact our operating expenses. Any of these factors, including becoming more promotional, could have an adverse effect on our business, results of operations and financial condition.

Failure to successfully manage and execute our marketing and pricing strategies could have a negative impact on our business. Our success and growth are partially dependent on generating customer traffic in order to gain sales momentum in our physical stores and drive traffic to our e-commerce platform. Effective use of CRM data and successful marketing efforts are necessary for us to reach customers through their desired mode of communication. Our inability to accurately predict our customers’ preferences, to utilize their desired mode of communication, or to ensure availability of advertised products at effective price points could adversely affect our business and results of operations.

An increaseChanges in the cost, or a disruption in the flow, of imported goods as a result of trade policy and/or tariffs may decreaseimpact our sales and profits. We rely on imported merchandise to sell in our stores. Substantially all of our footwear product is manufactured overseas, including the merchandise we purchase from domestic vendors and the smaller portion we import directly from overseas manufacturers. Our primary footwear manufacturers are located in China. Any disruption in the supply chain may increase the cost of the goods we purchase, limit our ability to acquire merchandiseChina and decrease our sales and profits.Vietnam.

changes in the political and economic environments in, the status of trade relations with, and the impact of changes in tradeChina, policies and tariffs impacting, ChinaVietnam and other countries which are the major manufacturers of footwear;

tariffs, import duties, import quotas, anti-dumping duties and other trade sanctions;

We locate our stores primarily in open-air shopping centers where we believe our customers and potential customers shop. The success of an individual store can depend on favorable placement within a given open-air shopping center and the volume of traffic generated by the other destination retailers and the anchor stores in the open-air shopping centers where our stores are located. We cannot control the development of alternative shopping destinations near our existing stores or the availability or cost of real estate within existing or new shopping destinations. If one or more of the destinationother retailers or anchor stores located in the open-air shopping centers where our stores are located close or leave, or if there is significant deterioration of the surrounding areas in which our stores are located, our business may be adversely affected. In addition, if our store locations fail to attract sufficient customer traffic or we are unable to locate replacement locations on terms acceptable to us, our business could suffer.

Various risks associated with our e-commerce platform may adversely affect our business and results of operations. E-commerce has been an important sales channel for us. We sell shoes and related accessories through websites that we control, and that are hosted by a leading provider, including www.shoecarnival.com and www.shoestation.com and through our related mobile app. We fulfill substantially all e-commerce orders from our store locations and from our Evansville distribution center. If we are unable to continue to grow our e-commerce sales or effectively manage the impact that rebannering our stores might have on our e-commerce sales channel, our sales, comparable stores Net Sales and Gross Profit may decline, and our stock price may decrease, any of which could negatively impact our results of operations, cash flows and financial condition.

We may not be able to successfully execute our growthstrategies strategy,to grow our business, which could have an adverse effect on our business, financial condition and results of operations. OurWe growthplan strategy requires that weto continue to invest in omnichannel initiatives, which requires a substantial investment in technology, to expand and improve our operating and financial systems and expand, train and manage our employee base. In addition, as we create more opportunities to connect with our customers through our omnichannel initiatives and as we grow the number of our physical stores, we may be unable to hire a sufficient number of qualified personnel or successfully integrate the omnichannel initiatives or new or acquired stores into our business.

If we fail to successfully implementgrow our growth strategy,business, our business, financial condition or results of operations could be adversely affected. The success of our growth strategySuccess will depend on a number of other factors, some of which are out of our control, including, among other things:

our ability to source sufficient levels of inventory and profitably sell through existing inventory;

We currently operate a primarysingle distribution center located in Evansville, Indiana. Virtually all merchandise received by our physical stores is, and will be, shipped through this distribution center. A disaster occurring at this distribution center would be significant and we could be unable to effectively deliver merchandise to our stores for an extended period. Disasters occurring at ourthis distribution center located in Evansville, Indiana,center, our corporate headquarters and other offices, our retail stores or the infrastructure of a key third-party vendor or service provider also could impact our reputation and our customers’ perception of our brand. In the event of a severe disruption resulting from such events, we have contingency plans and employ crisis management to respond and recover operations. Despite these measures, if such an occurrence were to occur, our results of operations and financial condition could be adversely affected.

The reliability and capacity of our information technology systems, and in particular our distribution technology operations, are critical to our continued operations.operations, Weand currentlywe rely on both internally developed software and third party software and software-as-a-service arrangements to operate a primary distribution center in Evansville, Indiana.it. Virtually all merchandise received by our physical stores is, and will be, shipped through thisour distribution center.center located in Evansville, Indiana. We fulfill substantially all of our e-commerce orders from our store locations and our primarythis distribution center. Given that we have one primary distribution center, virtually any technology disruption there could be significant to our operations. Our corporate computer network is essential to our distribution process. In addition, we routinely possess sensitive consumer and employee information. Customers are also increasingly using mobile devices and applications to shop online and do comparison shopping.

Despite our precautionary efforts, our information technology systems are vulnerable from time to time to damage or interruption from, among other things, natural or man-made disasters, technical malfunctions, inadequate systems capacity, power outages, terrorist attacks, computer viruses and security breaches, which may require significant investment to fix or replace. In addition, we are required to comply with increasingly complex regulations designed to protect our business and personal data.

If our primary distribution center is shut down for any reason, if our information technology systems do not operate effectively or if we are the target of attacks or security breaches, we may suffer the loss of critical data,data and/or our customers’ or employees’ personal information, we could incur increased costs associated with implementing additional protections and processes, we could incur significantly higher costs and longer lead times associated with distributing our products to our stores, our ability to operate our e-commerce platform may be impacted andimpacted, we could experience other interruptions or delays to our operations, we could receive negative media attention or be the subject of lawsuits or regulatory actions against us, and our relationships with our customers and employees and our reputation may be harmed, any of which could have an adverse effect on our operating and financial performance.

We outsource certain business processes to third-party vendors and have certain business relationships that subject us to risks, including disruptions to our business and increased costs. We rely on third-party suppliers for our merchandise and outsource some of our business processes to third-party vendors.vendors, including processes involving our e-commerce platform and supply chain. Our relationships with these business partners expose us to risks, including disruptions in our business and increased costs. In addition, other matters involving our business partners could have an adverse effect on our business and financial results. These include, but are not limited to:

changes in the public’s perception of the reputation and brand of the business partner as a result of matters such as its labor and wage standards, business practicespractices, including their use or misuse of artificial intelligence (“AI”) or marketing campaigns;

any data losses or information security lapses by a business partner that results in the compromise of personal information or the improper use or disclosure of sensitive information; and any misconduct by a business partner involving matters such as fraud or other improper or unethical activities conducted by the business partner or its non-compliance with our policies and procedures or with laws and regulations, including laws and regulations regarding the use and safeguarding of information,information and AI, labor practices, environmental, health or safety matters and lobbying or similar activities.

Failure of our business partners to provide adequate services or our inability to arrange for alternative providers on favorable terms in a timely manner could disrupt our business, increase our costs or otherwise adversely affect our business andbusiness, our financial results.results and reputation.

Emerging technologies may create disruption to our operations and the retail industry. New and emerging technologytechnologies may enable new approaches or choices for how our customers procure goods and services and pay for those goods and services.services and how we serve our customers. We may be unable to quickly adapt to rapid change resulting from artificial intelligence,AI, blockchain, Internet of Things, including voice and smart home devices, and other advanced technologiestechnologies. thatWe may resultnot intimely changesor effectively develop or enhance our business processes to take advantage of these emerging technological trends, or our supplycompetitors chain,may distributionbe channelsable to develop or enhance their business processes sooner or more effectively, which could have an adverse effect on our business, reputation, results of operations, financial position and point-of-salecash capabilities.flows.

We also increase our inventory levels to offer styles particularly suited for the relevant season, such as sandals in the early summer season and boots during the winter season. If the weather conditions for a particular season vary significantly from those typical for such season, such as an unusually cold early summer or an unusually warm winter, consumer demand for the seasonally appropriate merchandise that we have available in our stores has been in the past, and in the future could be, adversely affectedaffected, andwhich could negatively impact Net Sales and margins. Lower demand for seasonally appropriate merchandise may leave us with an excess inventory of our seasonally appropriate products, forcing us to sell these products at significantly discounted prices and adversely affecting our Net Sales, margins and operating cash flow.

the effectiveness of our inventory management and promotional intensity;

changes in general economic conditions, including inflationinflation, gasoline and energy prices, and consumer spending patterns; and actions of competitors or co-tenants.

We may not have adequate insurance coverage for all potential liabilities. Natural risks, as well as other hazards associated with our operations, can result in personal injury, severe damage or destruction to our owned assets, leasehold improvements and inventory, suspension of our operations, and cybersecurity breaches. Our insurance covers costs relating to specified, limited matters, such as events involving casualty losses and property losses due to fire and windstorms, as well as securities litigation and certain cybersecurity incidents, but does not cover other events such as acts of war or terrorist attacks. We maintain an amount of insurance protection we believe is appropriate, but there can be no assurance that the amount of insurance will be sufficient or effective under all circumstances and against all hazards or liabilities to which we may be subject. A claim for which we are not adequately insured could have an adverse effect on our financial condition. Further, due to the cyclical nature and currenta hardening of the insurance markets, we cannot provide assurance that insurance coverage will continue to be available on terms similar to those presently in place.

Our failure to manage key executive succession and retention could adversely affect our business. Our business would be adversely affected if we fail to retain key executives, or to adequately plan for the succession of members of our executive management team.team, Whileor weattract have succession plans in place fornew members ofto our executive management team, and continue to review and update those plans, and we have employment agreements with certain key executive officers, these plans and agreements do not guarantee that the services of our executive officers will continue to be available to us or that we will be able to find suitable management personnel to replace departing executives onincluding a timelypermanent basis.Chief Executive Officer.

Our failure to attract and retain qualified personnel and control labor costs could adversely affect our business. Our business model requires us to train, motivate and manage our employees and to attract, motivate and retain additional qualified managerial and merchandising personnel. Our ability to control costs and meet our labor needs in a rising wage and inflationary environment is subject to external factors such as unemployment levels, prevailing wage rates paid by those with whom we compete for talent, health care and minimum wage legislation, changing demographics and changinggeneral demographics.wage inflationary pressure. If we are unable to attract and retain quality sales associates and management, embrace automation, such as robot, artificial intelligence, and self-checkout technology, as necessary, or if market conditions or changes to minimum wage laws result in the need for higher wages paid to employees, our ability to meet our growth goals or to sustain expected levels of profitability may be compromised and our financial condition, results of operations and cash flows may be adversely affected.

We will require significant funds to implement our business strategy and meet our other liquidity needs. We may not generate sufficient cash flow from operations or obtain sufficient borrowings under our credit agreement to finance our business strategystrategy, including our rebanner strategy, and meet our other liquidity needs. Failure to generate or raise sufficient funds may require us to modify, delay or abandon some of our future growth or expenditure plans. We may utilize our credit agreement to fund working capital, including inventory purchases, and special purpose standby letters of credit, as needed. Significant decreases in cash flow from operations could result in our borrowing under the credit agreement to fund operational needs. If we borrow funds under our credit agreement and interest rates materially increase, our financial results could be adversely affected.

OurShoe Carnival, Inc. is one of the nation’s largest omnichannel sellers of footwear for the family, and our goal is to be the leading family footwear retailer in the United States. Our product assortment, whether shopping in a physical store or through our e-commerce sales channel, is primarily branded footwear and includes dress and casual shoes, sandals, bootsboots, work, and a wide assortment of athletic shoes. OurWe typical physical store carriescarry shoes in two general categories – athletics and non-athletics with subcategories for men’s, women’s and children’s,children’s asand wellwe asalso acarry broad range ofcertain accessories. In addition to our physical stores, through our e-commerce sales channel, customers can purchase the same assortment of merchandise in all categories of footwear with expanded options in certain instances. During Fiscal 2025, we operated two banners: Shoe Carnival and Shoe Station. For a description of these two banners, including the in-store environment, target customer and product assortment, see PART I, ITEM 1 of this Annual Report on Form 10-K.

Comparable stores Net Sales is a key performance indicator for us. Comparable stores Net Sales include stores that have been open for 13 full months after such stores’ grand opening or acquisition prior to the beginning of the period, including those stores that have been relocated, remodeled or rebannered. Therefore, stores recently opened, acquired or permanently closed are not included in comparable stores Net Sales. We generally include e-commerce sales in our comparable stores Net Sales as a result of our omnichannel retailer strategy. Due to our omnichannel retailer strategy, we view e-commerce sales as an extension of our physical stores. E-commerce sales channels associated with a physical store acquisition will not be included inRogan’s comparable stores Net Sales until the initial physical stores are included. The 21 original Shoe Station stores acquired and the www.shoestation.com e-commerce site that went live in early February 2023 were included in our comparable stores Net Sales quarterly calculations beginning in firstthe quarterthirteen 2023.weeks Allended ofAugust Rogan’s2, sales2025 areand excludedwill frombegin to be included in our comparable stores Net Sales.Sales annual calculations beginning in Fiscal 2026.

Fiscal 2025 Executive Summary

Fiscal 20242025 marked the 20th21st consecutive fiscal year end where we ended the fiscal year with no debt. In each of the last fourfive years, we have funded our operations and growth investments, including our acquisitions of Shoe Station and Rogan’s,Rogan’s and our current year rebanner and inventory investments, without drawing on our credit facility. We ended Fiscal 20242025 with $123.1$130.7 million of Cash, Cash Equivalents and Marketable Securities.Securities, up 6% compared to the end of Fiscal 2024 and $99.0 million of available borrowings under our existing credit facility to fund our growth objectives. Cash flows from operations in Fiscal 20242025 totaled $102.6$71.3 million. In Fiscal 2024, we paid $44.8 million for Rogan’s with cash on hand.

Changes in our Interest and Other Income and our Interest Expense increaseddecreased our Income Before Income Taxes by $3.7$2.7 million in Fiscal 20242025 compared to Fiscal 2023.2024. This increasedecrease was primarily due to pandemic-related tax credits of $3.0 million recognized in Fiscal 2024 associated with our acquisition of Rogan'sRogan's, inpartially Februaryoffset 2024 and alsoby higher interest earned on invested cash balances.

The effective income tax rate for Fiscal 20242025 was 24.3%25.7% compared to 23.7%24.3% for Fiscal 2023.2024. The higher effective tax rate in Fiscal 2025 compared to Fiscal 2024 was due to thediscrete decreaseadjustments inrelated tax benefits fromto share-settled equity awards and favorable impacts recognized in Fiscal 2024 and a state deferred tax benefit included in Fiscal 2023 that did not recur in Fiscal 2024, partially offset by impacts associated with our acquisition of Rogan’s.

Our primary sources of liquidity are $123.1$130.7 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of Fiscal 2024,2025, cash generated from operations and availability under our $100 million Credit Agreement. We believe our resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months. Our primary uses of cash are normally for working capital, which are principally inventory purchases, investments in our stores, such as rebanners and new stores, remodels and relocations, distribution center initiatives, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program and the financing of other capital projects, including investments in new systems. As part of our growth strategy, we have also pursued strategic acquisitions of other footwear retailers.

Net cash generated from operating activities was $102.6$71.3 million in Fiscal 20242025 compared to $122.8$102.6 million during Fiscal 2023.2024. The decrease in operating cash flow was primarily driven by the timing of increased inventory purchases and the reduction in Net Income as a result of costs incurred to support our rebanner strategy, new Shoe Station stores and, to a lesser extent, as a hedge against potential supply chain disruption from tariffs and port worker strikes, and the timing of prepaid contracts payments in Fiscal 2024 compared to Fiscal 2023.strategy.

Working capital increased on a year-over-year basis and totaled $437.7 million at January 31, 2026 compared to $405.7 million at February 1, 2025 compared to $353.5 million at February 3, 2024.2025. The increase was primarily attributable to higher Merchandise Inventories and Accounts Receivable, primarily due to the acquisition of Rogan's,a higher cash balances and lower Accounts Payable,balance, partially offset by anhigher increaseAccounts in Accrued and Other Liabilities.Payable. Our current ratio was 3.8 as of January 31, 2026, compared to 4.1 as of February 1, 2025, compared to 3.8 as of February 3, 2024.2025.

Our cash outflows for investing activities are normally for capital expenditures. During Fiscal 20242025 and Fiscal 2023,2024, we expended $33.2$44.7 million and $56.3$33.2 million, respectively, for the purchases of property and equipment, primarily related to rebanners, store remodels and rebannersremodels, and opening fourfive new Shoe Station stores.stores over both fiscal years.

Our Rogan’s acquisition in first quarter 2024 resulted in the payment of cash consideration of $44.8 million, net of cash acquiredacquired, in Fiscal 2024. Additional information regarding the Rogan’s acquisition, including information on the additional contingent consideration of up to $5.0 million, can be found in Note 3 — “Acquisition of Rogan Shoes” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K.

We invest in publicly traded mutual funds designed to mitigate income statement volatility associated with our non-qualified deferred compensation plan. The balance of these Marketable Securities was $13.6 million at January 31, 2026, compared to $14.4 million at February 1, 2025, compared to $12.2 million at February 3, 2024.2025. Additional information can be found in Note 4 — “Fair Value Measurementsof Financial Instruments” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K.

During Fiscal 2024,2025, net cash used in financing activities was $15.3$18.9 million compared to $20.5$15.3 million during Fiscal 2023.2024. The decreaseincrease in net cash used in financing activities was primarily due to the repurchase of $5.4 million of sharesincrease in Fiscaldividend 2023 under our Board of Directors’ authorized share repurchase program compared to none in Fiscal 2024payments and the decrease in shares surrendered by employees to pay taxes on stock-based compensation awards, partially offset by increased dividend payments.awards. During Fiscal 20242025 and Fiscal 2023,2024, we did not borrow or repay funds under our Credit Agreement. Letters of credit outstanding were $1.0 million at FebruaryJanuary 1,31, 2025,2026, and our borrowing capacity was $99.0 million. We also did not repurchase any shares under our share repurchase program in either Fiscal 2025 or Fiscal 2024.

Our Credit Agreement requires us to maintain compliance with various financial covenants. See Note 10 – “Debt” in our Notes to Consolidated Financial Statements contained in PART II, ITEM 8 of this Annual Report on Form 10-K for a further discussion of our Credit Agreement and its covenants. We were in compliance with these covenants as of FebruaryJanuary 1,31, 2025.2026.

Store Rebanners, Openings and Closings – Fiscal 2025

Management’s Discussion and Analysis of Financial Condition and Results of Operations is intended to provide information to assist the reader in better understanding and evaluating our financial condition and results of operations. We encourage you to read this in conjunction with our Condensed Consolidated Financial Statements and the notes thereto included in PART I, ITEM 1 of this Quarterly Report, as well as our Annual Report on Form 10-K for the fiscal year ended January 31, 2026 as filed with the SEC. This section of this Quarterly Report generally discusses our results for firstsecond quarter 2026 and firstsecond quarter 2025 as well as year-to-date results for, and year-over-year comparisons betweenbetween, firstthe quartertwo 2026 and first quarter 2025.periods.

ReferredAs referred to herein, second quarter 2026 is the thirteen weeks ended August 1, 2026, first quarter 2026 is the thirteen weeks ended May 2, 2026,2026 firstand second quarter 2025 is the thirteen weeks ended MayAugust 3,2, 2025. Also as referred to herein, year-to-date 2026 is the twenty-six weeks ended August 1, 2026 and year-to-date 2025 andis the twenty-six weeks ended August 2, 2025. Fiscal 2026 is the fiscal year ending January 30, 2027.

Shoe Station Group, Inc. (formerly known as Shoe Carnival, Inc.) is one of the nation’s largest omnichannel sellers of footwear for the family, and our goal is to be the leading family footwear retailer in the United States. Our product assortment, whether shopping in a physical store or through our e-commerce sales channel, is primarily branded footwear and includes dress and casual shoes, sandals, boots, work shoes, and a wide assortment of athletic shoes. We carry shoes in two general categories – athletics and non-athletics with subcategories for men’s, women’s and children’s and we also carry certain accessories. In addition to our physical stores, through our e-commerce sales channel, customers can purchase the same assortment of merchandise in all categories of footwear with expanded options in certain instances. We operate under two banners: Shoe Carnival and Shoe Station. As of MayAugust 2,1, 2026, we operated 426422 stores across 35 states and Puerto Rico, consisting of 145165 Shoe Station locations and 281257 Shoe Carnival locations.

On November 13, 2025, we announced that our Board unanimously approved changing our corporate name to Shoe Station Group, Inc., subjectwhich toreceived shareholder approval at our Annual Meeting of Shareholders on June 10, 2026. The name change was effective June 12, 2026. In connection with the name change, our common stock began trading on The Nasdaq Stock Market LLC under the symbol SHOE.

Our Shoe Carnival retail conceptbanner has developed over our 47-year history and is differentiated from our competitors by our distinctive, fun and promotional marketing efforts. Shoe Carnival stores combine competitive pricing with a high-energy in-store environment that encourages customer participation. Unique features of our Shoe Carnival store experience include upbeat music, opportunities for customers to spin our spin-n-win wheel and a mic-person who runs in-store specials. These specials include contests, games and hot deals of the moment to encourage customers to take immediate advantage of our special, in-store pricing. Our Shoe Carnival bannered stores serve families with children through moderate-income brands and a value-oriented selection, with entry-level price points.

TheOur Shoe Station banner and retail locations,banner, which includes stores co-branded as “Shoe Station at Rogan’s” and business-to-business operations branded as “Rogan’s Work”, serveserves a broader base of footwear customers. Our Shoe Station concept targets a more affluent footwear customer than our Shoe Carnival banner and has a strong track record of capitalizing on emerging footwear fashion trends and introducing new brands that meet the needs of the target customer. Shoe Station serves this demographic through a differentiated assortment of premium brands and an enhanced in-store experience.

CEO Transition and Strategic Review

Mr.In Worden’sconnection departure was treated as a termination without cause pursuant to his Amended and Restated Employment and Noncompetition Agreement, dated as of November 1, 2024. Payments to Mr. Worden included 168,184 shares of our common stock forwith the settlementCEO oftransition, outstanding equity awards whose vesting accelerated upon his termination without cause and a cash payment of $4.8 million. Paymentspayments to Mr. Worden and other related costs incurred, net of accruals for incentive and stock-based compensation as of January 31, 2026, resulted in a charge of $5.3 million in first quarter 2026. The tax deductibility of the payments made to Mr. Worden was limited by the Internal Revenue Code and increased our income tax expense by approximately $1.6 million. The impact of these payments made to Mr. Worden on our Diluted Net Loss per Share induring first quarter 2026 was $0.20.

Executive Summary for FirstSecond Quarter Ended MayAugust 2,1, 2026

Our Merchandise Inventories at the end of firstsecond quarter 2026 were $417.2$426.6 million, down $11.2$22.4 million, or 2.6%,5.0%, compared to the end of firstsecond quarter 2025. We anticipate an aggregate declinesdecline in Merchandise Inventories in a range of approximately $50 to $65 million by the end of Fiscal 2026 compared to the end of Fiscal 20252025. asThis weanticipated expectdecline is the result of continuing to sell the remainingthrough opportunistic pre-tariff and in-demand product purchased in Fiscal 2025 and increase promotional activity to workworking through excess inventory not part of our ongoing assortment, including legacy Shoe Carnival inventory, that will no longer be required as a result of rebannering.assortment. The promotional activity necessary to sell this inventory has reduced, and is expected to reducecontinue to reduce, gross profit marginsmargin in Fiscal 2026 compared to the 36.6% gross profit margin achieved in Fiscal 2025. Our first quarter 2026 gross profit margin declined 120 basis points compared to first quarter 2025.

The Fiscal 2025 year-end marked the 21st consecutive year where we ended a fiscal year with no debt, fully funding our operations, acquisitions and investments from operating cash flow and cash reserves. Through firstsecond quarter 2026, we also funded our operations without incurring any debt and grew our Cash, Cash Equivalents and Marketable Securities by $36.4$39.7 million, or 39.2%,43.2%, compared to the end of firstsecond quarter 2025. At the end of firstsecond quarter 2026, we had $129.3$131.6 million of Cash, Cash Equivalents and Marketable Securities and $99.0 million of available borrowings under our existing credit facility to fund our growth objectives, including new store openings expected in Fiscal 2027 and strategic acquisitions of other footwear retailers. Cash Flow from Operations increased $32.7$30.5 million in year-to-date 2026 compared to first quarteryear-to-date 2025 whilewith Merchandise Inventory reductions contributing to that increase and Capital Expenditures declined $2.9$9.5 million.

Results of Operations for FirstSecond Quarter Ended MayAugust 2,1, 2026 Compared to FirstSecond Quarter Ended MayAugust 3,2, 2025

Net Sales were $270.7$284.3 million during firstsecond quarter 2026, a decrease of $7.0$22.1 million, or 2.5%,7.2%, compared to firstsecond quarter 2025. The decrease was primarily due to a 2.1%7.1% decline in our comparable store Net Sales, whichinclusive includedof ana approximate 6%4% decrease in units sold,sold. partially offset by price increases. Our Shoe Carnival banner comparableComparable store Net Sales declined 1.7%,6.3% at our Shoe Carnival banner and declined 8.5% at our Shoe Station banner comparable storebanner. Net Sales declinedin 2.9%.both banners were impacted by an increasingly promotional footwear marketplace and by assortments not fully aligned with the customers shopping our stores. E-commerce sales were approximately 10% of merchandise sales in firstsecond quarter 2026,2026 compared to 9%8% in firstsecond quarter 2025.

Gross Profit was $90.1$90.6 million during firstsecond quarter 2026, a decrease of $5.7$28.2 million compared to firstsecond quarter 2025. Gross profit margin in firstsecond quarter 2026 was 33.3%,31.9%, a decrease of 120690 basis points, compared to 34.5%38.8% in firstsecond quarter 2025. The decrease in gross profit margin resulted from a 140630 basis point decrease in merchandise margin. Merchandise margin drivenin second quarter 2025 included a temporary benefit from raising prices in advance of increasing tariff-related costs. In second quarter 2026, merchandise margins were also impacted by increased promotional activity, higher merchandise cost,activity and higherproduct e-commerce-relatedliquidation. shipping costs. This decrease was partially offset by 20 basis points from primarily lower buying,Buying, distribution and occupancy costs.costs decreased gross profit margin 60 basis points primarily due to the deleveraging effect of lower Net Sales.

IncomeThe effective income tax expenserate infor the first quarter ofyear-to-date 2026 was $0.681.8% millioncompared andto 26.6% for year-to-date 2025. The higher effective tax rate in year-to-date 2026 compared to year-to-date 2025 was impacted by nondeductible CEO severance payments that increased income tax expense by approximately $1.6 million.million Our effective tax rate inand the first quarterimpact of 2026other wasdiscrete (11.2)%adjustments comparedrelated to 28.1%share-settled inequity the first quarter of 2025.awards. Our provision for income taxes is based on the current estimate of our annual effective tax rate and is adjusted as necessary for quarterly events. We anticipate an effective tax rate for Fiscal 2026 of approximately 37%.

Our primary sources of liquidity are $129.3$131.6 million of Cash, Cash Equivalents and Marketable Securities on hand at the end of firstsecond quarter 2026, cash generated from operations and availability under our $100 million Credit Agreement. We believe our resources will be sufficient to fund our cash needs, as they arise, for at least the next 12 months. Our primary uses of cash are normally for our working capital needs, which are principally inventory purchases, investments in our stores and distribution center, lease payments associated with our real estate leases, potential dividend payments, potential share repurchases under our share repurchase program and the financing of other capital projects, including investments in new systems and technology. As part of our growth strategy, we have also pursued, from time to time, strategic acquisitions of other footwear retailers.

Net cash generated from operating activities was $23.1$34.1 million in first quarteryear-to-date 2026 compared to net cash used in operating activities of $9.6$3.6 million in first quarteryear-to-date 2025. The increase in operating cash flow wasresulted primarily driven byfrom decreased inventory purchases, partially offset by lower earnings.

Working capital increased on a year-over-year basis and totaled $429.0$444.6 million at MayAugust 2,1, 2026 compared to $399.0$417.6 million at MayAugust 3,2, 2025. The increase was primarily attributable to a higher cashCash balanceand Cash Equivalents, coupled with lower payablesAccrued and accruedOther liabilities,Liabilities and a lower Current Portion of Operating Lease Liabilities, partially offset by lower Merchandise Inventories. Our current ratio was 4.0 as of MayAugust 2,1, 2026 compared to 3.7 as of MayAugust 3,2, 2025.

Our cash outflows for investing activities are normally for capital expenditures. During first quartersyear-to-date 2026 and 2025, we expended $10.4$15.0 million and $13.3$24.4 million, respectively, for the purchase of Property and Equipment, primarily related to our stores.

We invest in publicly traded mutual funds designed to mitigate income statement volatility associated with our non-qualified deferred compensation plan. The balance of these Marketable Securities was $13.2$13.6 million at MayAugust 2,1, 2026, compared to $13.6 million at January 31, 2026 and $14.5$13.2 million at MayAugust 3,2, 2025. Additional information can be found in Note 5 — “Fair Value Measurements” to our Notes to Condensed Consolidated Financial Statements contained in PART I, ITEM 1 of this Quarterly Report on Form 10-Q.